Porsche looks to cut costs amid sharp drop in sales

Porsche yesterday ann-ounced a cost-cutting programme and further production cuts after the German sports carmaker and owner of a majority stake in Volkswagen reported a fall in half-year operating profits and a sharp drop in sales.

Wendelin Wiedeking, Porsche’s chief executive, said the company had initiated a programme to cut costs by far more than €100m ($128m) and would idle its plants for another 19 days before this year’s summer break.

Porsche, like many other carmakers, has already halted production longer than usual over the Christmas break.

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Porsche Faces Frankfurt Investigation Over VW Trading (Bloomberg)

Mr Wiedeking’s comments came as Porsche’s sales dropped by 27 per cent in the first six months of its fiscal year, which ended today.

“It is fair to say that operating earnings in the first half of the year were down by the same extent as the company’s sales,” Mr Wiedeking said at the company’s annual shareholders’ meeting.

But overall earnings, boosted by VW option trades, would exceed the €1.66bn of the first six months of the previous fiscal year, Mr Wiedeking said.

Porsche has used a controversial options strategy to gradually take over VW, Europe’s largest carmaker with a revenue 15 times larger than Porsche’s.

In January, Porsche raised its stake in VW to 50.76 per cent. Porsche has said it intended to increase its VW stake to 75 per cent.

However, Mr Wiedeking struck a more cautious note yesterday when he said this plan was tied to the state of the broader economy, which was not favourable at the moment.

“We have always said we would not act irrationally,” Mr Wiedeking said.

Porsche’s revenue was down 14.3 per cent to about €3bn, highlighting the dire straits of the global car industry.

Martin Winterkorn, VW’s chief executive, told the Financial Times earlier this week that the carmakers’ sales had dropped by 15 per cent in January.

Hans Dieter Pötsch, chief financial officer, did not rule out the possibility of the group reporting a loss in the first quarter of 2009.

At the shareholder’s meeting, Porsche’s management faced some criticism for its stake-building in VW.

Hans Hirt, head of corporate governance at Hermes, the UK pension fund, accused Porsche of misleading the market when the group revealed in October that it held nearly 75 per cent in VW through a direct stake and share options.

“The circumstances we have just described seem to fall within this definition,” he said, referring to the German law of share price and market manipulation.

Bafin, the German financial watchdog, is investigating possible market manipulation.

Mr Wiedeking brusquely dismissed these accusations. “In the past, as well as today, we have strictly obeyed the current law,” he said.

Mr Hirt urged Porsche to cut back its derivative trading. “After all, we invested the funds entrusted to us in a producer of luxury cars, not a hedge fund.”

By Daniel Schäfer in Stuttgart
Published: January 31 2009 02:00 | Last updated: January 31 2009 02:00

Source: Financial Times

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